ETF Expert Corner

World Gold Council’s Juan Carlos Artigas on Current Gold Market, Demand Trends

May 16th, 2017 by ETF Store Staff

Juan Carlos Artigas, Director of Investment Research at the World Gold Council, offers perspective on the current gold market, the latest gold demand trends, and potential drivers of gold moving forward.


You can listen to our interview with Juan Carlos Artigas by using the above media player or enjoy a full transcription of the interview below.

Nate Geraci: Our guest today is Juan Carlos Artigas, Director of Investment Research at the World Gold Council. The World Gold Council is the leading global authority on gold. They also sponsor the world's largest gold ETF, the SPDR Gold Shares, ticker GLD. I would tell you, if you have any interest in investing in gold whatsoever, the World Gold Council's website at is simply a treasure trove of information. Juan Carlos is joining us via phone today from New York. Juan Carlos, as always, our pleasure to have you on the program

J. C. Artigas: Thank you so much for inviting me again.

Nate Geraci: Juan Carlos, historically, gold has tended to perform pretty well in periods of heightened geopolitical uncertainty and economic policy and political uncertainty. Certainly, we've seen all of these so far this year, and gold is up about six percent. What's been your reaction to what we've seen from gold so far in 2017?

J. C. Artigas: The first thing that I would mention to put things into perspective, actually over the long run, in both good economic times, as well as periods of systemic risk, on average, gold has returned between like five and seven percent on an annual basis. This is going back to the 1970's. So on an annual basis, usually the average return for gold has been between five and seven percent. So it is true that in periods of heightened uncertainty and when investors are more concerned, whether it is about economic policy, or geopolitics, or market stability, they tend to use gold to hedge additional risk in their portfolio. But the reality is that even in periods of economic growth, actually there is a good portion of gold demand that tends to go up. That is the part that is linked to consumption and long-term savings. A good portion of demand is linked to jewelry, as well as long-term savings, and it comes from emerging markets as well. So all in all, I think it is one of those things that investors don't often realize is that good economic times are not necessarily bad for gold. However, it is true that in periods of uncertainty, you do have more interest in gold as an investment, more flows coming into different vehicles, including gold-backed ETFs. And you see performance perhaps in excess of the average performance. So as you said, so far this year, just a little bit over four months, we are about six to seven percent up on the year.

Nate Geraci: You mentioned that good economic times are not necessarily a bad thing for gold - and maybe there's some debate out there about how good the economy is actually fairing right now - but with the economic data we've seen rolling in, I think a lot of investors are now watching the Fed. I think for gold investors in particular, there's some concern about the potential for rising rates. As a matter of fact, as of yesterday, Fed Fund Futures were pricing in about an 80% chance of a rate hike in June. Of course, gold doesn't pay any interest. Should rising rates be of concern to gold investors?

J. C. Artigas: The first thing that I would say outright is as interest rates increase, there is a higher opportunity cost of investing in other assets, whether it is gold or anything else. In other words, when the bank is paying you more to put money there, then you're more likely to save a little bit more in the bank, and less likely to put money into another outlet. That will include gold. So, definitely, higher interest rates have an impact on investment demand. But, I need to caveat this with two really, really important things. Number one, not all gold demand is investment demand. Actually, the bulk of demand for gold comes from non-investment sources. Jewelry makes up more than 50% of demand on average on an annual basis. You also have demand for technology or electronics and other technological applications, as well as demand that comes from central banks. So while investment demand is important and is relevant and people obviously look for that as a way to understand price discovery, it is not the only demand for gold. The second thing is that gold demand is truly global. The US makes up less than 10% of physical demand for gold. In other words, the bulk of demand is really coming from outside of the US. Now, even though interest rates may rise in the US, the reality is that they are still low, and around the world, rates are not really rising as much. In Europe, they are not likely to be increasing rates at the rate that the Fed may be doing, and likewise, there are other parts in the world where rates may be cut. So it is important to put things into perspective. Yes, higher interest rates in the US are going to perhaps diminish the interest from some US investors to put more money into gold, but at the same time, there are all of these other macroeconomic factors, as well as the uncertainty that is happening in the US. So on the one hand, you do have that headwind, but you have a lot of tailwinds for the case of gold, including uncertainty, really high stock prices, and potential pullbacks, and the fact that gold over the long run has helped to preserve wealth for investors.

Nate Geraci: I'm guessing investors should probably go through the same thought process when we look at something like inflation as well, right? Because I think many investors view gold as an inflation hedge. Obviously, inflation has remained rather subdued, but it sounds like that's not necessarily a potential headwind for gold prices moving forward.

J. C. Artigas: Look, I mean all else equal, if you do have much higher inflation and inflation expectations, investors are going to use real assets, including gold, to hedge some of that. Now, the misconception again here is it's not just about CPI. I mean, inflation is broader than just one single measure. Actually, many investors experience inflation in a very different way from what the CPI or US CPI is doing. Perhaps because they are spending more on medical care, or on education, or various other things that impact their daily lives. In addition, again, you have a global measure of inflation, not just the US. So inflation is one of the drivers of gold, but it shouldn't be seen as the only reason to invest in gold. Actually, gold has been shown to be a very good diversifier for a portfolio, especially in tough economic times, and that can be quite useful in terms of the long-term health of an investor's portfolio.

Nate Geraci: Our guest today is Juan Carlos Artigas, Director of Investment Research at the World Gold Council. Juan Carlos, earlier you were mentioning some of the different demand sources of gold - and I guess outside of the immediacy of geopolitics and the Fed and the economy, interest rates, and inflation - obviously just fundamental supply and demand helps drive the price of gold. I'd like to go into some more detail here. The World Gold Council recently released the first quarter gold demand trends report, which by the way, for our listeners, you can actually access this report for free at But this report showed gold demand decreased compared to the first quarter of 2016. It actually declined 18% year-over-year. I thought that was interesting just given that the price of gold has increased so far this year. Can you provide some insight here? What were some of the biggest drivers in this slowing demand?

J. C. Artigas: Absolutely. This is really, really interesting, and it truly highlights various aspects that are relevant for gold. The first is the global nature of gold, and the second is that again, when you're comparing year-over-year demand growth, you need to put into context what happened the previous year or the previous quarter. So if you exclude ETFs, or ETF demand from the equation, or if you measure demand for gold excluding ETFs, actually demand for gold in Q1 2017 was up from the first quarter in 2016. Now, what happened though is that there was a really, really strong investment demand through gold-backed ETFs in Q1 2016. It was actually the second highest on record. And because of that, anything that you compare to that, like even if demand for gold in Q1 from ETFs was still strong on a historical perspective, it was much smaller than what it was the previous year. So when you compare that, this year's Q1 demand in ETFs relative to the really, really strong number that we saw last year, it looks relatively small. However, on a historical perspective, ETFs this year were still robust, and once you strip that component, which created some of the upticks, actually the demand for gold was up.

Nate Geraci: When you look at the various demand sources for gold, you mentioned ETFs, central banks, you have retail investment demand, there's jewelry and electronics demand. I'm curious, how do these break down? In other words, which of these tend to drive gold demand the most?

J. C. Artigas: That's a really, really important question to ask I think because the gold price is not just an asset that is driven by a single factor. So you cannot say, "Well, this for sure is the thing that always drives gold". It is driven by many factors that are very intuitive, but they interact with each other. So what I would say is I would separate performance of gold in terms of short-term and long-term performance. In terms of short-term performance, or price discovery, usually the movement of gold in a given day or in a given week or so on, even potentially in a month, is usually influenced more by investment flows, whether it is happening in gold-backed ETFs, or in the derivatives markets, or in potentially bars and coins. But, over the long run, it is really the long-term demand is not just driven by what is happening in investment, actually, as I was saying before, economic growth and larger incomes and growing incomes around the world are the things that are driving the long-term trend. So in all, income growth around the world, it's one of the most important long-term drivers of gold, and that's one of the reasons why generally speaking, gold has been on an upward trend, again, with price movements, and of course there haven't been all positive years - but since 2000, generally speaking, the trend has been moving upwards, and it is in part due to the expansion of income around the world, not just in the US, but really around the world.

Nate Geraci: Again, our guest today is Juan Carlos Artigas, Director of Investment Research at the World Gold Council. Juan Carlos, I know you tend to focus much more on the demand side of the equation, but if we could, I'd like to just briefly touch on the supply side of gold as well. Can you provide any insight into what gold mining production has looked like recently and is there anything else noteworthy occurring on the supply side?

J. C. Artigas: Sure. Of course, as with any other asset, looking both at the supply and the demand parts of the equation is quite important. What is interesting about gold is that overall, there are two sources of supply. So it's not just mine production. In fact, overall, gold demand outpaces mine production. So there is more demand than what gold mining companies are producing each year, generally speaking. However, because gold is virtually indestructible - so you can store gold and you can store it for centuries, and for millennia, and you can transport it and so on and so forth - recycled gold, so gold that comes back whether it is in the form of jewelry or gold bars or coins, also allows the market to be filled through on the supply side. Now, why is this important? Again, in terms of the mine production, mine production has risen, or rose, or has risen since about like 2008 or 2010, but it has risen at a fairly slow pace - not really at the same rate that, for example, the price of gold has been rising over the past decade. So if you look at where mine production was in 2000 and where it is now, it is slightly higher, but it's not so much higher. It's more or less within 400 tons or so of where it was before. And there are a lot of studies that point out that potentially mine production may either plateau or start decreasing unless there are changes in the price of gold. One of the interesting statistics is that the costs of production in gold, for example the all in sustaining costs - how much it costs to extract an ounce of gold and to maintain mines and so on and so forth - it is currently ... Or in 2009, it was currently around $900 an ounce. But about 30% of mine production has all in sustaining costs above $1,000 an ounce. So you can see that actually extracting gold can be quite expensive and that keeps the system in balance.

Nate Geraci: Alright, we have just a few minutes left here. Before we let you go, as you look ahead to the remainder of 2017, and even out into 2018, what do you think will be some of the key drivers for gold? Whether those are positive or negative drivers.

J. C. Artigas: I think that people, of course, are going to continue keeping an eye on what the Fed is doing and how the path that interest rates may take - so how many hikes and how fast interest rates may rise. As we mentioned before that those increase the opportunity cost of investing in gold. But on the other hand, there's a lot of money flowing into the stock market, which can be good for investors as they obtain returns and so on and so forth from those investments, but at the same time, it has pushed valuations pretty high. That can be a potential source of instability, unless the system is... or the economy grows enough to sustain those levels. There's a lot of geopolitical uncertainty, and whether it is in developed markets or in emerging markets, people are definitely taking a look or keeping an eye on that. What is interesting is that so far this year, even though investors have invested heavily on the stock market, they have also continued to buy gold. And the way that we view it is perhaps what they are trying to do is make sure that they have something to balance the additional risks that investors are taking by investing in the gold market. So between the uncertainty and geopolitical risk, and in addition to the path that the Fed may take, those would be some of the main elements of the market to keep an eye on.

Nate Geraci: Juan Carlos, we'll have to leave it there. As always, just tremendous insight into the gold market. We certainly appreciate you joining us on the program today. Thank you very much.

J. C. Artigas: Thank you for inviting me.

Nate Geraci: That was Juan Carlos Artigas, Director of Investment Research at the World Gold Council.